India’s 10-year bonds gained for a second day, pushing yields to the lowest since June 2004, on speculation easing inflation will allow the central bank to further cut interest rates. Benchmark yields declined the most in more than a week after the Press Trust of India reported today that the government may lower fuel prices, citing Oil Minister Murli Deora. The Reserve Bank of India slashed its overnight lending rate three times this quarter from a seven-year high as inflation cooled to an almost 10-month low. “The present macroeconomic and market conditions call for an easier monetary policy,” said Paresh Nayar, chief of currency and fixed-income trading at Development Credit Bank Ltd. in Mumbai. “Investors are pricing that in,” pushing yields lower, he said. The yield on the 8.24 percent note due April 2018 slid 13 basis points to 5.42 percent as of 11:51 a.m. in Mumbai, according to the central bank’s trading system. The price climbed 1.08 rupees per 100-rupee face amount to 120.43. The 10-year yield may decline to 5 percent in the coming weeks, Nayar said. Asia’s third-largest economy may expand at the slowest pace since 2003, the finance ministry said in its mid-year review on Dec. 23. The government sees scope for further easing of monetary policy over the next six to 12 months as economic growth slows, it said. The Reserve Bank of India has lowered the repurchase rate by 2.5 percentage points since Oct. 20 to 6.5 percent. It is due to review its monetary policy next on Jan. 27. The government may soon unveil more fiscal measures to spur growth, the Press Trust of India reported yesterday, citing Montek Singh Ahluwalia, deputy chief of the nation’s Planning Commission. The report spurred speculation that the central bank will also do its part by reducing borrowing costs. Indian government bonds are the best performers this year among the 10 local-currency debt markets in Asia outside of Japan, returning 20.8 percent, according to indexes compiled by HSBC Holdings Plc.

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